Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a … read more

Comments

We have low interest rates - but absolutely not 'easy' money. I guess Professor Frankel does not know anybody who recently asked for a loan : 100% security and life insurance is the new norm. He claims "central banks are balancing rapid growth ... against the dangers of future overheating". Now there's a world we would like to have. It might well come as rates rise. Banks will lend, borrowers will go for it for fear that, when interest rates go up, it will cost more to borrow. They are right. Savers will start to spend when they see interest rates giviunbg income at last and they think there is more to come. They are also right. Pension funds will start making up their deficits and think about increasing payouts. And it will work for them. But this is the mirror of where we are now with low, negative interest rates and, for other than the recipients of QE, very 'hard' money. Professor Frankel, it is quite a provocation to pretend that these days, money is 'easy'. I think you need to take a very hard, very challenging look at your statistics. Read more

You do not have to look very far. The US Census bureau itself gives the health warning on its 2015 figures for 5.2% increase“The data for 2013 and beyond reflect the implementation of the redesigned income questions.” Read more

Call me a populist if you want but I disagree with you on several points. Too long to explain. Just one example: “But there is little evidence that low interest rates have been behind the continued rise in equity prices from 2012 to 2015 – a period when markets were anticipating an interest-rate hike.” I do not know what enables you to state that markets anticipated interest-rate hikes during that period. Did you see the bond yield curve increase and steepen sharply between 2012 and 2015? Nope. Personally, I never thought the FED would raise interest rates. Proof I was right: facts are on my side. The FED has never raised rates until December 2015 and it only did it by 25 basis points. The fact that the FED could raise rates was only the opinion of some journalists and pundits not that of the market as a whole. Read more

Whose America are you talking about? Everywhere and everyone I see has less income and more expenses! I cannot afford nearly as much as I could last year. Most of us are mid-middle or lower-middle class....and getting lower every year or month. For the everyday consumer prices are up. workload is up and income is down...get it? Read more

Monetary policy involves more than interest rates. It's determined as well by what you finance. If you focus on assets, you support asset prices and capital income. If you focus on income, you support both capital and earned income. But central banks do not lend against income, so their support programs -- and all the gains from central bank seignorage -- are biased towards property owners and capital income.

Extremely easy monetary policy today exacerbates inequality much more than in the 80's because:1) financial asset ownership is much more widespread;2) Globalization reduced workers bargaining power (no wage inflation)3) Advanced economies have reached a point that I would call of "full useful capacity", where we are now more enganged in finding new needs rather than satisfying existing eneeds and therefore lowering interest rates does not spur investment but only grows borrowing. Those who can turn borrowings into financial assets win; those who borrow to make ends meet lose. In the 80's we barely had the internet, no smartphones, no 60'' flat tvs, no Teslas, no low cost airlines, no cheap imports from China... To be fair, easy money gave a great help to Progress but it also made the distribution of related benefits highly concentrated to the top earners.I agree fiscal policy should and could have done more to fight inequality and Governments should be held responsible for letting monetary policy get out of hand. Read more

Dear Professor,The fact that America’s middle class did not participate in the strong 2009-2016 market rally certainly contributed to a widening wealth divide but I was comparing today’s broad dependence on financial markets to the 1980s. Think how much bigger the financial services industry has become compared to previous decades (although not as buoyant as 2004-2008) and how dependant to stock market performance are the bonuses of those employed in those sectors and top executives at large corporations.But this is only part of the argument; the main problem is that easy money didn’t do what is was supposed to do, ie spur investments and economic activity. Its main boost was on M&A, stock buybacks and very cheap financing of exploding Government debt, which in the future will probably be tackled by reducing benefits for the lower classes.So in general my point is that economic policies that aim at growing GDP will inevitably favour the rich and grow inequality and I see the debate between fiscal policy and monetary policy as quite sterile. When Governments voluntarily let Central Banks run the economy isn’t that a fiscal policy too??Read more

Luca Grande, On your point (1), I think that stock market ownership has actually been down among middle class Americans ever since 2008. But is that the direction it would take to support the argument that lower interest rates have increased inequality by boosting stock prices?JF Read more

There's something very wrong about a Harvard professor (School of Government no less) preaching the gospel of Equality. Same as when the richest billionaires want us to elect the Crooked Clinton, that got rich on the back of the taxpayers, but now will "solve" Inequality. Am I the only one to see the Blatant Irony? Read more

Biased nonsense. "Populists" are people like Clinton that promise the poor FREE STUFF but deliver only perpetual poverty. The monetary policy is wrong in the same vein - FREE MONEY without bad consequences. But money has Zero Intrinsic Value - it's just a mean to transfer value from one person to another in exchange for goods and services. Read more

Good article, it should be complemented by the fact that low interest rates have nothing to do with monetary expansion, at the moment.

We have low interest rates because there was a shift in preferences and agents are avoiding risk. Central Banks are just accomodating the decrease in money velocity, that's why we have no inflation. Read more

Andrew Jackson was a populist fighting for easy monetary policy? It's strange to see that kind of assertion coming from a Harvard professor who should know better. That's a high school type of mistake. Generally speaking, the entire gist of the rest of the article is also wrong. It is debatable whether easy monetary policy in certain circumstances might ultimately help the little guy by preventing further crisis, but generally speaking, it's fairly obvious to most informed people that low interest rates tend to increase asset prices for the wealthy while simultaneously increasing prices for the average consumer. Come on, Frankel. Come on. Read more

While I agree the Jackson argument was farfetched, but your idea that if Ferrari and Diamond prices go up it penalizes the poor, it’s just absurd.

I don't agree that asset prices (whatever that means) are going up. What we are witnessing is the widening of risk premia, so it’s natural that with the shift of perception for low risk assets to increase value and risky assets to go down.

Inflation is low, which tells you that not only asset prices aren’t higher but that monetary expansion is only accommodating the higher demand for riskless investments.Read more

Rates should rise to the level of nominal GDP. Then, we could see the destruction that trade imbalances are doing to our economy as we compensate the currency manipulators with higher interest rate reparations (encouraging even higher imbalances and lower profits). We could see reality instead of warping it to fit your views. Read more

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